Personal Bankruptcy: Judicial Doctrine and Systemic Misapplications

The personal insolvency procedure in Ukraine was intended to serve as a civilised and balanced mechanism for resolving financial distress. Yet practical experience shows that the path toward opening insolvency proceedings is often exceedingly difficult, overly formalistic, and at times even illogical.

1. Why Opening Insolvency Proceedings Is So Difficult

The difficulties begin with the very wording of Article 115 of the Bankruptcy Code, particularly the “cessation of payments” criterion. It is drafted so imprecisely that it creates fundamental uncertainty: must the 50% threshold of unpaid obligations be calculated per each loan separately or based on the total amount of obligations? On top of that, the debtor is expected to prove the fact of non-payment — effectively a “negative proof,” an almost impossible task when creditors refuse to cooperate.

A systemic problem arises when creditors simply ignore court orders to provide information about the amount and nature of the debt. Courts, instead of recognising such conduct as bad faith, often shift the entire evidentiary burden onto the debtor. As a result, cases are frequently rejected not because the debtor is solvent, but because they physically cannot obtain documents that creditors deliberately withhold. A telling example is case No. 906/177/25, where the court expressly acknowledged that creditors failed to submit the required information, yet still held the debtor responsible for the lack of evidence.

2. The Supreme Court’s Doctrine on Debtor Good Faith

Judicial doctrine frames debtor good faith as a core principle. The Supreme Court consistently emphasises that only a debtor who did not intentionally create their insolvency, provides truthful information, cooperates with the court, and does not conceal assets may qualify for debt relief.

However, in practice this doctrine is frequently applied in a one-sided manner. Courts tend to evaluate the conduct of the debtor in isolation, disregarding the behaviour of creditors. This creates an imbalance, especially considering that creditors often contribute to the debtor’s financial distress through illegal fees, misleading information, contradictory behaviour during creditors’ meetings, or refusal to engage in compromise.

3. When Courts Confuse Bad Faith with Honest Mistakes

Another widespread issue is the judicial tendency to treat ordinary human mistakes as manifestations of bad faith. Debtors in financial crisis act under pressure, often without professional assistance. They may incorrectly fill out forms, make inaccurate declarations, misunderstand procedural requirements, or inadvertently miss deadlines — and courts interpret these actions as deliberate misconduct.

Bahinskyi rightly notes the paradox: even Ukraine’s Law on Prevention of Corruption allows for honest mistakes in asset declarations by public officials. Yet private individuals seeking debt relief face a much more rigid standard. This effectively equates error with guilt, undermining the rehabilitative purpose of the personal bankruptcy system.

4. Bankruptcy Must Remain a Protective Mechanism — Not a Punitive One

Personal bankruptcy was designed as a social protection tool meant to return individuals to economic activity, not punish them for financial hardship. Yet current judicial practice often turns bankruptcy into an ordeal, a test that many debtors simply cannot pass.

Courts should analyse the full context, consider creditor behaviour, distinguish between error and intent, and remember that insolvency is not a crime but a life circumstance that can happen to anyone.

Conclusion

Personal bankruptcy should function as a rehabilitative mechanism rather than a punitive filter. Bahinskyi’s presentation convincingly demonstrates that the system requires re-evaluation. Excessive formalism must be reduced, good faith must be assessed comprehensively, creditor misconduct must not be ignored, and honest mistakes should no longer be treated as grounds for denying debt relief.